The majority of bucket shops advertise that stock can be actually delivered, but as their patrons call for delivery, only in rare cases, they can afford to buy the stock thru genuine brokers to fill these occasional demands. On the real exchanges not only are all stocks delivered, except where the clearing houses make an offset, but vast quantities of stock are actually transferred every day from one owner to another on the books of the companies. Even where the broker on a legitimate exchange has the gambling instinct he is forced by the rules into an actual merchandising transaction.
3. Extent of bucketing.—It is difficult to say whether bucket shops have catered more to gambling in grain or in stocks. In the Middle West, grain is the favorite, on the Atlantic seaboard, stocks. There is no way of estimating the number of shops existing at any one time. In 1910, the Federal Department of Justice closed 250, and about the same number were driven out of business in 1915-1916. At one time there were 54 bucket shops in Boston alone. It is said that in a single city in New York State 8300 shares of a certain stock were "bought and sold" in the bucket shops in one day, altho only 1350 shares changed hands on the New York Stock Exchange. A further illustration of the size of this illegitimate business is shown by the fact that in one state the bucket shops once traded in 50,000,000 bushels of wheat a year.
4. Margins or stakes.—Bucket shops usually re quire a margin of only 2 per cent. This is really the customer's stake in the game. The proprietor holds the stake and appropriates it when the price of the stock, which is the object of the bet, falls to the limit of the deposit, unless of course, the customer puts up another sum. As will be remembered, a legitimate broker rarely charges less than 10 per cent. Super ficially then, one might suppose the advantage to lie with the bucket shops, and hastily come to the conclu sion that for the public at large they offer greater benefits.
It cannot be denied that the man who pays 2 per cent of the value of a stock loses less than the one who pays 10 per cent but the latter has five more chances to recover a loss. Time and again it has been demonstrated that stocks are apt to drop at the beginning of the day because of over night rumors, but after the effects of the rumors have worn off prices recover their losses. The 2 per cent man would be
wiped out while waiting for prices to recover. Just as important is the fact that the 10 per cent man is trans acting legitimate business with responsible and hon orable individuals who are not likely to break their pledges and flee the town overnight, as so often hap pens in the case of the bucket shop owners.
5. When bucketers flourish.—Bucket shops thrive best in a falling market, because the majority of cus tomers wager that stocks will rise. It is in the in terest of the bucket shop owners to have prices fall that they may pocket the differences; otherwise they lose. During the present war, speculation on the ex changes has surpassed all expectations and stocks have shot upward as seldom before. This fact explains why so many bucket shops have recently closed up.
To prevent loss and ruin many bucketers often unite and make a drive against the market to force down prices and thus ruin their customers. A bucket shop keeper, it must be remembered, is in the business only to make money.
Suppose several of these concerns have orders to "buy" a large number of shares of a given stock. Technically they are short of the market. It is per fectly feasible for them to go to regular brokers, if the brokers will take their business, and if not directly, then thru dummies, and sell a great block of stock short, thus breaking the market and wiping out the margins the customers have on hand.
Most of the bucket shops are controlled by un scrupulous men of large financial resources. In out ward appearance, however, the bucket shop differs little from the establishment of a member broker of the Exchange. High sounding names are used such as Standard Stock Company. On the signs often ap pear such statements as: "Member of the Exchange," "Member of the Board," "Bankers and Brokers" and so on. Names of famous houses are imitated. The real backers often keep out of sight. Able lawyers with political influence are engaged to defend them.
One group of proprietors is said to have made $20, 000,000. One firm alone had seventy branches. Many of the groups have gone by the names of "Ex changes" and "Syndicates." Their secret power and outward appearance cover up the degenerate nature of the business.